Jan 16 – Dancing in the Dark

Although the implementation date for the Mortgage Credit Directive is 21st March 2016, it is looking increasingly likely that the participants in the second charge mortgage industry are looking to “go early”.  Indications are that most lenders are looking to switch from operating under the FCA Consumer Credit rules to the new MCD compliant Mortgage Conduct of Business rules from around the 15th of February 2016. This means that all intermediary firms looking to advise on or offer the option of a second charge loan will need to have confirmed to the FCA that they are advising on seconds as part of their mortgage permission.  The firm will also have to be ready to issue the ESIS as part of their advice to the consumer.

Of course most first charge brokers use a seconds master broker to assist them in this work and they will hopefully all be ready with their full mortgage permission and ready for the transfer date.  This will give second charge lenders some 6 weeks to clear down their pipelines without the need to re-issue documents, but any loans not “completed” by 21st March will need to be re-assessed and issued with new paperwork.  The biggest risk is where they have been assessed as affordable by a lender without the application of a “rate stress test” and do not now meet the new credit criteria.  This could lead to some difficult client conversation.  The message to all in the industry is to ensure that pipelines are cleared through before final MCD day in March.

In addition, the second charge lenders will only be showing the commission paid to the advising broker.  Any other payments will not be included.  Advisers will need to take care that in their additional documents they make clear to the consumer the total fees and commissions that are being paid to all in the chain.